US: Pending Home Sales Index

Wed Sep 27 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Pending Home Sales Index - M/M -0.2% -0.6% to 1.2% -2.6% -0.8%
Pending Home Sales Index - Level 106.3 109.1

Existing home sales have been on the decline as signaled all along by the pending home sales index which is down a very steep 2.6 percent in the latest reading which is for August. Hurricane Harvey's late August hit on Texas didn't help pending sales in the South which fell 3.5 percent but pending sales show across-the-board weakness: Northeast down 4.4 percent, Midwest down 1.5 percent, and the West down 1.0 percent.

Pending sales nationwide are down a year-on-year 2.6 percent while final sales of existing homes are down 1.7 percent. The pending index has been on a tailspin this year, peaking at 112.3 in February and now down at 106.3 for a year-to-date decline of 5.3 percent. New home sales, along with sales of existing homes, have also been moving lower making for a housing sector that is visibly stumbling into year end. The cause? It's not mortgage rates which are very low nor employment which is very strong. High asking prices, however, are one factor as is soft wage growth.

Market Consensus Before Announcement
Pending sales have been accurately forecasting this year's steady weakness in the existing home sales report. The South, by far the largest housing region, was very weak in July and probably won't be getting any help in August from Hurricane Harvey. After July's 0.8 percent dip, the Econoday consensus for the August pending sales index is a dip of 0.2 percent.

The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. Specifically, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

The National Association of Realtors moved up its publication schedule in 2011. Prior to 2011, the reference month was two months trailing the release date. In 2011, the reference month trails only by one month to the release month.